Press Release

GOLETA, Calif.--(BUSINESS WIRE)--
Inogen,
Inc. (NASDAQ: INGN),
a medical technology company offering innovative respiratory products
for use in the homecare setting, today reported financial results for
the three-month period ended March 31, 2018.

First Quarter 2018 Highlights

Record total revenue of $79.1 million, up 50.6% over the same period
in 2017

Record sales revenue of $73.6 million, up 60.1% over the same
period in 2017

Rental revenue of $5.5 million, down 16.3% from the same period in
2017

GAAP net income of $10.8 million, reflecting an 81.4% increase over
the same period in 2017 and a 13.6% return on revenue

Adjusted EBITDA of $15.5 million, representing 42.7% growth over the
same period in 2017 and a 19.6% return on revenue (see accompanying
table for reconciliation of GAAP and non-GAAP measures)

Total units sold were 45,400, an increase of 19,800, or 77.3%, over
the same period in 2017

“In what is historically a seasonally slower quarter, we were able to
generate record revenues driven by strong sales in both our domestic
direct-to-consumer and domestic business-to-business channels,” said
Chief Executive Officer, Scott Wilkinson. “We are executing on our
strategic initiatives and remain focused on increasing adoption of our
best-in-class oxygen product offerings across all of our sales channels.
We are currently ahead of schedule to meet our plan of hiring 240
Cleveland-based employees by 2020. We believe we should see strong sales
growth in 2018 as portable oxygen concentrator penetration increases
worldwide.”

First Quarter 2018 Financial Results

Total revenue for the three months ended March 31, 2018 rose 50.6% to
$79.1 million from $52.5 million in the same period in 2017.
Direct-to-consumer sales rose 67.8% over the same period in 2017, ahead
of expectations primarily due to increased sales representative
headcount and associated consumer marketing. Domestic
business-to-business sales exceeded expectations and grew 60.4% over the
same period in 2017, primarily driven by continued strong demand from
the Company’s private label partner and traditional home medical
equipment providers. International business-to-business sales in the
first quarter of 2018 increased 48.0% over the comparative period in
2017. In spite of sizable unit orders from South Korea in the first
quarter of 2017 that did not repeat in the first quarter of 2018,
international sales of $16.9 million were strong versus the first
quarter of 2017, primarily due to continued adoption from our European
partners and favorable current rates. Sales in Europe represented 89.5%
of international sales in the first quarter of 2018, up from 73.2% in
the first quarter of 2017. Rental revenue in the first quarter of 2018
was $5.5 million compared to $6.5 million in the first quarter of 2017,
representing a decline of 16.3% from the same period in the prior year.
The decrease in rental revenue was primarily due to our continued focus
on direct-to-consumer sales versus rentals, and a $0.2 million Cures Act
benefit received in the first quarter of 2017, representing a rental
revenue headwind of 2.6% in the first quarter of 2018. Rental revenue
declined to 6.9% of total revenue in the first quarter of 2018 from
12.4% of total revenue in the first quarter of 2017.

Total gross margin was 47.7% in the first quarter of 2018 versus 49.0%
in the comparative period in 2017. The decrease in total gross margin
was primarily due to lower sales revenue per unit and lower rental gross
margins, partially offset by lower cost of sales revenue per unit. Sales
gross margin was 49.8% in the first quarter of 2018 versus 52.3% in the
first quarter of 2017. The sales gross margin percentage declined
primarily due to increased volume leading to lower average selling
prices in the business-to-business channel. This was partially offset by
increased mix towards direct-to-consumer sales and lower average cost of
sales revenue per unit. Rental gross margin was 20.0% in the first
quarter of 2018 versus 25.9% in the first quarter of 2017. The decrease
in rental gross margin was primarily due to the $0.2 million Cures Act
benefit received in the first quarter of 2017 which lifted rental
margins by 2.3%, in addition to increased logistics costs in the first
quarter of 2018. This was partially offset by lower depreciation costs.

Total operating expense increased to $29.0 million, or 36.7% of revenue,
in the first quarter of 2018 versus $20.2 million, or 38.4% of revenue,
in the first quarter of 2017 as the Company continued to make
investments it expects will increase future revenue growth.

Operating expense included research and development expense of $1.4
million in the first quarter of 2018, which was up slightly from $1.3
million in the comparative period in 2017, primarily due to increased
personnel-related expenses. Sales and marketing expense increased to
$18.0 million in the first quarter of 2018 versus $10.5 million in the
comparative period in 2017, primarily due to increased personnel-related
expenses as we continued to hire inside sales representatives at our
Cleveland facility, in addition to increased advertising expenditures.
General and administrative expense increased to $9.6 million in the
first quarter of 2018 versus $8.3 million in the comparative period in
2017, primarily due to increased personnel-related expenses, but
partially offset by a decrease in patent defense costs.

The Company reported an income tax benefit of $1.1 million in the first
quarter of 2018, up from $0.1 million reported in the first quarter of
2017. The Company’s income tax benefit in the first quarter of 2018
included a $3.3 million decrease in provision for income taxes related
to excess tax benefits recognized from stock-based compensation compared
to $2.2 million in the first quarter of 2017. Excluding the stock-based
compensation benefit, the Company’s non-GAAP effective tax rate in the
first quarter of 2018 was 22.5% versus 36.7% in the first quarter of
2017, primarily due to the impacts of the U.S. federal tax reform.

In the first quarter of 2018, the Company reported net income of $10.8
million, compared to net income of $5.9 million in the first quarter of
2017. Earnings per diluted common share was $0.48 in the first quarter
of 2018 versus $0.27 in the first quarter of 2017, an increase of 77.8%.

Adjusted EBITDA for the three months ended March 31, 2018 rose 42.7% to
$15.5 million, or 19.6% of revenue, from $10.9 million, or 20.7% of
revenue, in the first quarter of 2017.

Cash, cash equivalents, and marketable securities were $188.3 million as
of March 31, 2018 compared to $173.9 million as of December 31, 2017, an
increase of $14.4 million in the first quarter of 2018.

Financial Outlook for 2018

Inogen is increasing its full year 2018 total revenue guidance range to
$310 to $320 million, up from $298 to $308 million, representing growth
of 24.3% to 28.3% versus 2017 full year results. The Company continues
to expect direct-to-consumer sales to be its fastest growing channel,
domestic business-to-business sales to have a solid growth rate, and
international business-to-business sales to have a modest growth rate,
where the 2018 strategy will continue to be heavily focused on the
European markets. Inogen now expects rental revenue to be down
approximately 10% in 2018 compared to 2017 as the Company continues to
focus on sales versus rentals.

Further, the Company is also increasing its full year 2018 GAAP net
income and non-GAAP net income guidance range to $38 to $41 million, up
from $36 to $39 million, representing growth of 80.9% to 95.2% compared
to 2017 GAAP net income of $21.0 million and growth of 33.0% to 43.5%
compared to 2017 non-GAAP net income of $28.6 million. The Company still
estimates that the decrease in provision for income taxes related to
excess tax benefits recognized from stock-based compensation will lead
to a decrease in provision for income taxes of approximately $8.0
million in 2018 based on forecasted stock activity, which would lower
its effective tax rate as compared to the U.S. statutory rate. Excluding
the estimated $8.0 million decrease in provision for income taxes
expected in 2018, the Company expects a non-GAAP effective tax rate of
approximately 25%. The Company expects its effective tax rate including
stock-based compensation deductions to vary quarter-to-quarter depending
on the amount of pre-tax net income and on the timing and size of stock
option exercises.

Inogen is also increasing its guidance range for full year 2018 Adjusted
EBITDA to $62 to $67 million, up from $60 to $64 million, representing
22.0% to 31.8% growth compared to 2017 results.

Inogen also expects net positive cash flow for 2018 with no additional
equity capital required to meet its current operating plan.

Conference Call

Individuals interested in listening to the conference call today at
1:30pm PT/4:30pm ET may do so by dialing (855) 238-8123 for domestic
callers or (412) 317-5217 for international callers. Please reference
Inogen (INGN) to join the call. To listen to a live webcast, please
visit the Investor Relations section of Inogen's website at: http://investor.inogen.com/.

A replay of the call will be available beginning April 30, 2018 at
3:30pm PT/6:30pm ET through 3:30pm PT/6:30pm ET on May 7, 2018. To
access the replay, dial (877) 344-7529 or (412) 317-0088 and reference
Access Code: 10118964. The webcast will also be available on Inogen's
website for one year following the completion of the call.

Inogen has used, and intends to continue to use, its Investor Relations
website, http://investor.inogen.com/,
as a means of disclosing material non-public information and for
complying with its disclosure obligations under Regulation FD. For more
information, visit http://investor.inogen.com/.

About Inogen

Inogen is innovation in oxygen therapy. We are a medical technology
company that develops, manufactures and markets innovative oxygen
concentrators used to deliver supplemental long-term oxygen therapy to
patients suffering from chronic respiratory conditions.

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, among others, statements regarding anticipated growth
opportunities; hiring expectations; expectations for all revenue
channels for full year 2018; the expected impact of the decrease in
provision for income taxes related to excess tax benefits recognized
from stock-based compensation for full year 2018; and financial guidance
for 2018, including revenue, GAAP net income, Adjusted EBITDA, non-GAAP
net income, net cash flow, effective tax rates, and the need for equity
financing. Forward-looking statements are subject to numerous risks and
uncertainties that could cause actual results to differ materially from
currently anticipated results, including but not limited to, risks
arising from the possibility that Inogen will not realize anticipated
revenue; the impact of reduced reimbursement rates, including private
payor reductions and reductions in connection with competitive bidding
and the Center for Medicare and Medicaid Services (CMS) rules; the
possible loss of key employees, customers, or suppliers; and
intellectual property risks if Inogen is unable to secure and maintain
patent or other intellectual property protection for the intellectual
property used in its products. In addition, Inogen's business is subject
to numerous additional risks and uncertainties, including, among others,
risks relating to market acceptance of its products; competition; its
sales, marketing and distribution capabilities; its planned sales,
marketing, and research and development activities; interruptions or
delays in the supply of components or materials for, or manufacturing
of, its products; risks related to the recent data security incident,
remediation measures, and potential claims; seasonal variations;
unanticipated increases in costs or expenses; and risks associated with
international operations. Information on these and additional risks,
uncertainties, and other information affecting Inogen’s business
operating results are contained in its Annual Report on Form 10-K for
the year ended December 31, 2017 and in its other filings with the
Securities and Exchange Commission. Additional information will also be
set forth in Inogen’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2018 to be filed with the Securities and Exchange
Commission. These forward-looking statements speak only as of the date
hereof. Inogen disclaims any obligation to update these forward-looking
statements except as may be required by law.

Use of Non-GAAP Financial Measures

Inogen has presented certain financial information in accordance with
U.S. GAAP and also on a non-GAAP basis for the three months ended March
31, 2018 and March 31, 2017. Management believes that non-GAAP financial
measures, taken in conjunction with U.S. GAAP financial measures,
provide useful information for both management and investors by
excluding certain non-cash and other expenses that are not indicative of
Inogen's core operating results. Management uses non-GAAP measures to
compare Inogen's performance relative to forecasts and strategic plans,
to benchmark Inogen's performance externally against competitors, and
for certain compensation decisions. Non-GAAP information is not prepared
under a comprehensive set of accounting rules and should only be used to
supplement an understanding of Inogen's operating results as reported
under U.S. GAAP. Inogen encourages investors to carefully consider its
results under U.S. GAAP, as well as its supplemental non-GAAP
information and the reconciliation between these presentations, to more
fully understand its business. Reconciliations between U.S. GAAP and
non-GAAP results are presented in the accompanying table of this
release. For future periods, Inogen is unable to provide a
reconciliation of non-GAAP measures without unreasonable effort as a
result of the uncertainty regarding, and the potential variability of,
the amounts of interest income, interest expense, depreciation and
amortization, stock-based compensation, provision (benefit) for income
taxes, and certain other infrequently occurring items, such as
acquisition related costs, that may be incurred in the future.

Consolidated Balance Sheets

(amounts in thousands)

March 31,

December 31,

2018

2017

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

154,284

$

142,953

Marketable securities

34,012

30,991

Accounts receivable, net

35,089

31,444

Inventories, net

22,965

18,842

Deferred cost of revenue

335

361

Income tax receivable

591

1,313

Prepaid expenses and other current assets

3,778

2,584

Total current assets

251,054

228,488

Property and equipment, net

20,898

20,103

Goodwill

2,430

2,363

Intangible assets, net

4,456

4,717

Deferred tax asset - noncurrent

20,434

18,636

Other assets

610

765

Total assets

$

299,882

$

275,072

Liabilities and stockholders' equity

Current liabilities

Accounts payable and accrued expenses

$

24,760

$

20,626

Accrued payroll

6,607

6,877

Warranty reserve - current

2,829

2,505

Deferred revenue - current

3,152

3,533

Income tax payable

319

345

Total current liabilities

37,667

33,886

Warranty reserve - noncurrent

4,416

3,666

Deferred revenue - noncurrent

10,391

9,402

Deferred tax liability - noncurrent

358

348

Other noncurrent liabilities

713

729

Total liabilities

53,545

48,031

Stockholders' equity

Common stock

21

21

Additional paid-in capital

226,635

218,109

Retained earnings

19,397

8,639

Accumulated other comprehensive income

284

272

Total stockholders' equity

246,337

227,041

Total liabilities and stockholders' equity

$

299,882

$

275,072

Consolidated Statements of Comprehensive Income

(unaudited)

(amounts in thousands, except share and per share amounts)

Three months ended

March 31,

2018

2017

Revenue

Sales revenue

$

73,584

$

45,966

Rental revenue

5,467

6,534

Total revenue

79,051

52,500

Cost of revenue

Cost of sales revenue

36,948

21,913

Cost of rental revenue, including depreciation of $2,165 and $2,689
respectively

4,376

4,843

Total cost of revenue

41,324

26,756

Gross profit

37,727

25,744

Operating expense

Research and development

1,416

1,309

Sales and marketing

18,038

10,529

General and administrative

9,573

8,335

Total operating expense

29,027

20,173

Income from operations

8,700

5,571

Other income (expense)

Interest income

543

101

Other income

444

207

Total other income, net

987

308

Income before benefit for income taxes

9,687

5,879

Benefit for income taxes

(1,071

)

(53

)

Net income

$

10,758

$

5,932

Other comprehensive income (loss), net of tax

Change in foreign currency translation adjustment

108

—

Change in net unrealized gains (losses) on foreign currency hedging

(249

)

54

Less: reclassification adjustment for net (gains) losses included in
net income

Weighted-average number of shares used in calculating net
income per share attributable to common stockholders:

Basic common shares

21,026,154

20,489,532

Diluted common shares

22,295,213

21,579,721

(1)

Reconciliations of net income attributable to common stockholders
basic and diluted can be found in Inogen’s Quarterly Report on Form
10-Q to be filed with the Securities and Exchange Commission.

Supplemental Financial Information

(unaudited)

(in thousands, except units and patients)

Three months ended

March 31,

2018

2017

Revenue by region and category

Business-to-business domestic sales

$

28,016

$

17,461

Business-to-business international sales

16,906

11,423

Direct-to-consumer domestic sales

28,662

17,082

Direct-to-consumer domestic rentals

5,467

6,534

Total revenue

$

79,051

$

52,500

Additional financial measures

Units sold

45,400

25,600

Net rental patients as of period-end

29,600

32,600

Reconciliation of U.S. GAAP to Other Non-GAAP Financial Measures

(unaudited)

(in thousands)

Three months ended

March 31,

Non-GAAP EBITDA and Adjusted EBITDA

2018

2017

Net income

$

10,758

$

5,932

Non-GAAP adjustments:

Interest income

(543

)

(101

)

Benefit for income taxes

(1,071

)

(53

)

Depreciation and amortization

2,993

3,204

EBITDA (non-GAAP)

12,137

8,982

Stock-based compensation

3,381

1,891

Adjusted EBITDA (non-GAAP)

$

15,518

$

10,873

Three months ended

March 31,

Non-GAAP net income

2018

2017

Net income

$

10,758

$

5,932

Non-GAAP adjustments:

2017 U.S. tax reform(1)

—

—

Non-GAAP net income

$

10,758

$

5,932

Three months ended

March 31,

Non-GAAP provision (benefit) for income taxes and effective tax
rate

2018

2017

Income before benefit for income taxes

$

9,687

$

5,879

Benefit for income taxes

(1,071

)

(53

)

Effective tax rate

-11.1

%

-0.9

%

Benefit for income taxes

$

(1,071

)

$

(53

)

Non-GAAP adjustments:

Excess tax benefits from stock-based compensation

3,252

2,213

2017 U.S. tax reform (1)

—

—

Provision for income taxes (non-GAAP)

$

2,181

$

2,160

Income before provision for income taxes

$

9,687

$

5,879

Provision for income taxes (non-GAAP)

2,181

2,160

Effective tax rate (non-GAAP)

22.5

%

36.7

%

(1)

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted
into law, which significantly changes existing U.S. tax law and
includes numerous provisions that affect the Company. During the
fourth quarter of 2017, the Company recorded an estimated one-time
net charge due to the impact of changes in the tax rate, primarily
on deferred tax assets. There were no related charges during the
first quarter of 2018.

Company

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